Now There’s Something You Don’t See Every Day:  A Subcontractor Intervening in a Bid ProtestFans of the classic 1960s cartoon series Rocky and Bullwinkle may recall two minor characters, Chauncey and Edgar, who commented on the action by saying something like this: “Now there’s something you don’t see every day, Edgar.” “What’s that, Chauncey?” And then Chauncey would tell the joke, such as it was. (It usually wasn’t much.)

The U.S. Court of Federal Claims (COFC), however, has just given us, in all seriousness, one of those something-you-don’t-see-every-day moments by letting a subcontractor intervene in a bid protest in Mitchco International, Inc. v. United States. Although the decision probably will apply narrowly because of its unique facts involving the Randolph-Sheppard Act, its rarity merits a closer look, and the reasoning might offer opportunities for resourceful counsel in the future.

Randolph-Sheppard Act Overview

The Randolph-Sheppard Act (RSA), which governs the Mitchco procurement, “establishes a priority for blind persons represented by state licensing agencies (SLA)” for “the award of contracts for . . . the operation of cafeterias in federal buildings” (Ga. Bus. Enter. Program-Vocational Rehab. Agency). When a federal agency uses the RSA to procure cafeteria operations services from blind vendors, the agency invites the SLA to respond to the solicitation (34 C.F.R. § 395.33). If the SLA submits a competitive offer, the procuring agency will contract with the SLA after negotiations, and the SLA will “identify and assign qualified blind vendors to operate the facilities” (Colo. Dep’t of Human Servs., Div. of Vocational Rehab. v. United States).

Background of the Mitchco International Case

Mitchco, the incumbent contractor, recently filed a bid protest at COFC, challenging the award of an Army contract under the RSA to the Kentucky Office of Vocational Rehabilitation (KOVR), a Kentucky state agency, and its teaming partner, Southern Foodservice Management, Inc. The contract is for food services at the Fort Knox dining facilities. The Government Accountability Office already dismissed a protest by Mitchco of that award (Mitchco Int’l, Inc. ). Among other counts, Mitchco alleges possible violations of the Procurement Integrity Act by KOVR and Southern. In an unusual move, Southern moved to intervene in Mitchco’s COFC case.

How Does a Party Normally Intervene at the COFC?

The Rules of the Court of Federal Claims (RCFC) allow for “Intervention of Right” and “Permissive Intervention” (RCFC 24). Intervention of Right applies when the prospective intervenor has an unconditional right under the law or claims an interest in the matter that requires its participation to protect (RCFC 24(a)). Permissive Intervention, on the other hand, applies to parties having only a “conditional right” to intervene under the law or that have “a claim or defense that shares with the main action a common question of law or fact” (RCFC 24(b)). Southern sought to intervene under the second option, Permissive Intervention.

COFC’s Order on Southern’s Motion to Intervene

Normally in a bid protest, the intervener is the awardee of the contract being challenged. The gist of Southern’s argument, however, was that although the contract awardee was KOVR (the SLA), KOVR had proposed Southern to perform the work with KOVR’s blind vendor, meaning that Southern was not a typical subcontractor. In addition, Southern argued that the complaint in a separate state-level lawsuit was “brimming with allegations directed at Southern,” including that KOVR and Southern had “colluded to misappropriate Mitchco’s proprietary and trade secret information about cafeteria services at Fort Knox.” Thus, Southern argued, the COFC complaint was just a repackaged version of the state-level allegations. According to Southern, it was impossible for COFC to resolve the bid protest without addressing “at least some of Mitcho’s allegations against Southern – which overlap Mitchco’s state court allegations substantially.”

The COFC granted Southern’s motion, stating, in part:

If plaintiff is correct, Southern violated procurement law and committed fraud, in collusion with KOVR, when KOVR was tentatively awarded the contract. Who better and with more at stake to deal with these accusations than Southern?

*     *     *

Our review is thus limited to the propriety of the federal government’s actions or inactions in awarding this contract, but Southern may be able to shed light on the question by explaining its own conduct in response to the allegations brought by plaintiff. In that sense, Southern has a defense that shares a common question of law and fact with the government’s and KOVR’s defense of the Army’s decision to award to KOVR (and to Southern as the subcontractor).

The COFC was also persuaded by the fact that the contract was awarded under the RSA because, in that case, KOVR was only a nominal awardee as SLA. The real party that stands to win or lose economically is Southern. Thus, Southern has an interest “beyond that of a normal subcontractor.” Lastly, the COFC found that no other party could adequately represent Southern’s interests.

Takeaways

In any future protests at the COFC where a subcontractor tries to intervene, the opposing parties will probably try to rely on the unique facts of the Mitchco case to oppose the attempt. Nevertheless, it is likely that practitioners who represent subcontractors that want to participate in bid protests will focus on the language in the order, which is already on Westlaw, regarding a subcontractor’s ability to protect its interests when it is being accused of wrong-doing in a bid protest. Thus, we can expect to see more of these arguments, perhaps making them something not that unusual at all.

Bradley will continue to monitor updates regarding bid protest cases involving subcontractors at the COFC. If you have any questions about subcontractor intervention in protests and how they might possibly be formulated, please feel free to contact Patrick Quigley or Aron Beezley.

UPDATE: Huawei Ban and Section 889 Representation RequirementsTo “combat the national security and intellectual property threats that face the United States,” section 889(a)(1)(B) of the John S. McCain National Defense Authorization Act for FY 2019 (Pub. L. 115-232) prohibits executive agencies from “entering into, or extending or renewing, a contract with an entity that uses any equipment, system, or service that uses covered telecommunications equipment or services as a substantial or essential component of any system, or as critical technology as part of any system.” The latest development implements a substantial expansion of the prohibition beyond direct government procurement of “covered telecommunications equipment or services” to a prohibition against contracting with entities that use the covered equipment or services, even when unrelated to specific performance of a government contract.

The statute defines “covered telecommunications equipment or services” as follows:

  • Telecommunications equipment produced by Huawei Technologies Company or ZTE Corporation (or any subsidiary or affiliate of such entities);
  • For the purpose of public safety, security of government facilities, physical security surveillance of critical infrastructure, and other national security purposes, video surveillance and telecommunications equipment produced by Hytera Communications Corporation, Hangzhou Hikvision Digital Technology Company, or Dahua Technology Company (or any subsidiary or affiliate of such entities);
  • Telecommunications or video surveillance services provided by such entities or using such equipment; or
  • Telecommunications or video surveillance equipment or services produced or provided by an entity that the Secretary of Defense, in consultation with the Director of National Intelligence or the Director of the Federal Bureau of Investigation, reasonably believes to be an entity owned or controlled by, or otherwise connected to, the government of a covered foreign country.

To implement section 889(a)(1)(B) of the statute, the Federal Acquisition Regulation (FAR) Council published a much-anticipated interim rule on July 14, 2020. The first interim rule added a representation to the provision at FAR 52.204-24(d)(2), Representation Regarding Certain Telecommunications and Video Surveillance Services or Equipment, which required offerors to represent on an offer-by-offer basis if the offeror “does” or “does not” use covered telecommunications equipment or services, or use any equipment, system, or service that uses covered telecommunications equipment or services, and if it does, require the offeror to provide additional disclosures.

On August 27, 2020, the FAR Council issued a second interim rule to further implement section 889(a)(1)(B) and reduce the “burden on the public” by allowing an offeror that represents that it “does not” use covered services or equipment in an annual representation under FAR 52.204-26(c)(2) or FAR 52.212-3(v)(2)(ii) to skip the offer-by-offer representation required by FAR 52.204-24(d)(2) (see above). Offerors should, however, be mindful that certain solicitations for requirements at a “high risk” for including covered telecommunications equipment or services may be subject to class deviations and may still require the representations in FAR 52.204-24 on an offer-by-offer basis.

The FAR Council states that updates to the System for Award Management (SAM) were necessary to add this new annual representation and require offerors to represent annually, after conducting a “reasonable inquiry,” whether it uses covered telecommunications equipment or services, or any equipment, system, or service that uses covered telecommunications equipment or services. These updates to SAM were not available by the effective date of the first interim rule and, thus, they are being made in the second interim rule.

Bradley will continue to monitor updates regarding section 889 implementation. If you have any questions about section 889 requirements or compliance, please feel free to contact Aron Beezley, Sarah Osborne or Nathaniel Greeson.

Policy Clauses, Exclusions and Endorsements: Language MattersThe Ninth Circuit Court of Appeals just reminded policyholders that while coverage exclusions are to be read narrowly, they must also be read comprehensively.

In Engineered Structures, Inc. v. Travelers Property Casualty Company of America, Engineered Structures, Inc. (ESI) obtained a builders’ risk insurance policy from Travelers Property Casualty Company of America (Travelers) to insure against the risk of loss during ESI’s construction of a fueling station. During construction, an underground fuel storage tank floated in a wet excavation hole before it could be installed completely. Travelers determined that ESI (or its subcontractors) caused the loss by not putting enough ballast water into the storage tank to prevent flotation during rain. Travelers denied coverage for the loss under the policy’s exclusion for loss due to “faulty, inadequate or defective . . . [d]esign, specifications, workmanship, repair, construction, renovation, remodeling, grading or compaction.” ESI sued Travelers and asserted claims, including breach of contract and bad faith.

The district court focused on the term “workmanship” in the exclusion and found the term ambiguous because it was not clear whether “workmanship” applied to losses caused by a flawed product (the storage tank itself) or to losses caused by a flawed process (the installation of the storage tank). Because the exclusion was ambiguous, the trial court construed it in favor of coverage and decided the exclusion only applied to flawed products and thus did not preclude coverage for loss caused by a flawed process in the tank installation. The trial court granted summary judgment in favor of ESI on the breach of contract claim but granted summary judgment in favor of Travelers on the bad faith claim. Both parties appealed.

On appeal, the Ninth Circuit reversed the district court’s grant of summary judgment in favor of ESI. The Ninth Circuit found the district court erred by focusing on the term “workmanship” and disregarding the term “construction,” which the court described as an unambiguous term that was used consistently throughout the policy to refer to the “‘process’ in completing the covered project.” The court also found that the district court “merely ‘assume[d] insufficient ballast was in the [storage tank] at the time of the loss’” and remanded for further proceedings to determine whether the loss was caused by “faulty, inadequate, or defective” construction.

In dicta, the Ninth Circuit also addressed a policy provision on “resulting loss or damage,” which provides: when an “excluded cause of loss . . . results in a Covered Cause of Loss,” Travelers “will pay for the resulting loss or damage caused by that Covered Cause of Loss.” ESI argued the provision means only the defect itself is excluded from coverage, but all other damages are covered. Travelers contended that no coverage was provided because all loss was caused by the faulty construction that allowed the tank to float in the excavated hole.

While acknowledging that interpretation of the clause would be decided by the district court, the Ninth Circuit opined that the positions argued by Travelers and ESI were “untenable.” The court rejected Traveler’s position because the provision did not contain an anti-concurrent causation clause, so the exclusion could not bar coverage for all of ESI’s loss where faulty construction was only one factor among several that caused the loss. The court further explained that ESI’s interpretation was flawed because it would require ignoring policy language that excludes coverage for “any cost incurred to tear down, tear out, repair or replace any part of any property to correct the fault, inadequacy or defect.”

While this Ninth Circuit ruling is unpublished and fairly narrow in its application to the interpretation of builders’ risk policies, its criticism of the district court opinion provides helpful guidance to policyholders (and their counsel) in construing insurance policies. First, policyholders should consider the meaning of every word in an insurance policy. Second, policyholders should consider how the interpretation of each of those words affects whether, or the extent to which a loss may be covered by a policy. Third, courts generally interpret each word in a policy within the context of the policy as a whole and may not find interpretations of terms in isolation persuasive. While applicable facts and law may vary, policyholders should be mindful of a particular jurisdiction’s approach to policy interpretation when developing a coverage claim.